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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 6, 1996
(December 31, 1995)
ATLANTIC AMERICAN CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
Georgia 0-3722 58-1027114
-----------------------------------------------------------------
(State or other (Commission File (I.R.S. Employer
of incorporation Number) Identification Number)
or organization)
4370 PEACHTREE ROAD, N.E., ATLANTA, GEORGIA 30319
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 266-5500
-----------------------------------------------------------------
None
----
(Former name, former address and former fiscal year, if changed since last
report)
Item 7. Financial Statements and Exhibits.
- -------------------------------------------
Item 7 of the Form 8-K of Atlantic American Corporation dated January
12, 1996, is hereby amended in its entirety as follows:
(a) Financial Statements of Business Acquired:
The following financial statements of American Southern Insurance
Company ("American Southern") for the years ended December 31,
1994, 1993, and 1992 are included in this Report as Exhibit
(99.4):
-- Consolidated Balance Sheets.
-- Consolidated Statements of Income.
-- Consolidated Statements of Stockholder's Equity.
-- Consolidated Statements of Cash Flows.
-- Notes to Consolidated Financial Statements.
(b) Pro Forma Financial Information:
The following pro forma financial statements of Atlantic
American Corporation ("Atlantic American") are included in
this Report as Exhibit (99.5):
-- Pro Forma Combined Condensed Balance Sheet as of
September 30, 1995 (unaudited).
-- Pro Forma Combined Condensed Statement of Income for the
year ended December 31, 1994 (unaudited).
-- Pro Forma Combined Condensed Statement of Income for the
nine-month period ended September 30, 1995 (unaudited).
(c) Exhibits:
(99.4) American Southern financial statements for the years
ended December 31, 1994, 1993, and 1992.
(99.5) Atlantic American pro forma financial statements
(unaudited).
-1-
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC AMERICAN CORPORATION
-----------------------------
(Registrant)
Date: March 6, 1996 By: /s/
--------------- ----------------------------
John W. Hancock
Senior Vice President-Treasurer
(Principal Financial Officer)
By: /s/
---------------------------
John C. Hall, Jr.
Corporate Controller
(Principal Accounting Officer)
-2-
Exhibit 99.4
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
AMERICAN SOUTHERN INSURANCE COMPANY
Consolidated Financial Statements
American Southern Insurance Company
Years ended December 31, 1994, 1993 and 1992
with Report of Independent Auditors
American Southern Insurance Company
Consolidated Financial Statements
Years ended December 31, 1994, 1993 and 1992
Contents
Report of Independent Auditors.........................................l
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................2
Consolidated Statements of Income......................................3
Consolidated Statements of Stockholder's Equity........................4
Consolidated Statements of Cash Flows..................................5
Notes to Consolidated Financial Statements.............................6
Report of Independent Auditors
Board of Directors
American Southern Insurance Company
We have audited the accompanying consolidated balance sheets of American
Southern Insurance Company and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of income, stockholder's equity, and
cash flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Southern Insurance Company and subsidiaries at December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Company changed its method of accounting for certain investments in debt and
equity securities to comply with Statement of Financial Accounting Standards No.
115 and, in 1993, the Company changed its method of accounting for income taxes
to comply with Statement of Financial Accounting Standards No. 109 and
reinsurance to comply with Statement of Financial Accounting Standards No. 113.
Atlanta, Georgia
February 23, 1995,
except for Note 10, as
to which the date is
January 18, 1996
-1-
American Southern Insurance Company
Consolidated Balance Sheets
December 31
1994 1993
------------------------------
(In Thousands, Except Share
Amounts)
Assets
Investments (Notes 1 and 4) $57,497 $56,069
Cash and cash equivalents 6,111 8,315
Premiums receivable, less allowance ($200
in 1994 and $10 in 1993) 2,972 2,555
Reinsurance receivables (Note 5) 13,039 9,689
Deferred policy acquisition costs 1,429 1,311
Deferred income taxes (Note 3) 1,917 826
Other assets 1,749 1,531
Intangibles, principally goodwill, less
accumulated amortization ($562 in 1994
and $386 in 1993) 6,063 5,239
------------------------------
Total assets $90,777 $85,535
==============================
Liabilities and stockholder's equity Liabilities:
Unpaid losses and loss adjustment
expenses (Note 7) $37,826 $32,847
Unearned premiums 13,476 11,799
Commissions and other payables 3,541 3,434
Reinsurance payables 1,451 1,289
Accrued income taxes payable (Note 3) 462 364
------------------------------
56,756 49,733
Total liabilities
Stockholder's equity (Note 6):
Common stock, par value $10 per share -
authorized and issued 300,000 shares
at December 31, 1994 and 1993 3,000 3,000
Additional paid-in-capital 27,911 26,911
Net unrealized investment (losses) gains (1,969) 330
Retained earnings 5,079 5,561
------------------------------
Total stockholder's equity 34,021 35,802
------------------------------
Total liabilities and stockholder's equity $90,777 $85,535
==============================
See accompanying notes.
-2-
American Southern Insurance Company
Consolidated Statements of Income
Year ended December 31
1994 1993 1992
------------------------------------
(In Thousands)
Revenues:
Net earned premiums $36,989 $39,253 $37,250
Net investment income 3,780 4,023 3,708
Net realized investment gains 8 103 225
------------------------------------
Total revenues 40,777 43,379 41,183
Costs and expenses:
Losses and loss adjustment expenses 25,599 27,016 25,162
Commission and underwriting expenses 9,104 9,923 9,420
Amortization of intangibles 176 188 162
------------------------------------
Total costs and expenses 34,879 37,127 34,744
------------------------------------
Income before federal income taxes and
cumulative effect of accounting change 5,898 6,252 6,439
Income taxes:
Current 1,704 1,430 2,340
Deferred (124) 235 (443)
------------------------------------
1,580 1,665 1,897
------------------------------------
Net income before cumulative effect of
accounting change 4,318 4,587 4,542
Cumulative effect of the change in
accounting method (Note 1) - 83 -
------------------------------------
Net income $4,318 $4,670 $4,542
====================================
See accompanying notes.
-3-
American Southern Insurance Company
Consolidated Statements of Stockholder's Equity
Year ended December 31
1994 1993 1992
------------------------------------
(In Thousands)
Common stock:
Balance at beginning of year $ 3,000 $ 2,000 $ 2,000
Stock dividend - 1,000 -
------------------------------------
Balance at end of year $ 3,000 $ 3,000 $ 2,000
====================================
Additional paid-in capital:
Balance at beginning of year $26,911 $26,911 $25,911
Increase in purchase price 1,000 - 1,000
------------------------------------
Balance at end of year $27,911 $26,911 $26,911
====================================
Net unrealized investment (losses) gains:
Balance at beginning of year $ 330 $ 38 $ -
Unrealized (losses) gains on
investments (3,548) 292 38
Change in investment balances as a
result of SFAS 115 (Note 1) 1,249 - -
------------------------------------
Balance at end of year $(1,969) $ 330 $ 38
====================================
Retained earnings:
Balance at beginning of year $ 5,561 $ 2,491 $ 2,749
Net income 4,318 4,670 4,542
Stock dividend - (1,000) -
Dividends to stockholder (4,800) (600) (4,800)
------------------------------------
Balance at end of year $ 5,079 $ 5,561 $ 2,491
====================================
Total stockholder's equity $34,021 $35,802 $31,440
====================================
See accompanying notes.
-4-
American Southern Insurance Company
Consolidated Statements of Cash Flows
December 31
1994 1993 1992
------------------------------------
(In Thousands)
Operating activities
Net income $ 4,318 $ 4,670 $ 4,542
Adjustments:
Depreciation and amortization 309 395 124
Net realized investment gains (8) (103) (225)
Cash flows from trading securities (174) - -
Changes in assets and liabilities:
Net premiums receivable (417) (158) 1,417
Reinsurance receivable (3,350) (48) (709)
Deferred policy acquisition costs (118) 185 (265)
Unpaid losses and loss adjustment
expenses 4,979 492 3,125
Unearned premiums reserves 1,677 (1,002) 3,149
Other liabilities 318 753 (2,687)
Other, net (413) (5) (508)
------------------------------------
Net cash provided by operating activities 7,121 5,179 7,963
Investing activities
Sales and maturities of investments 46,302 26,582 34,428
Purchases of investments (50,827) (29,250) (46,285)
------------------------------------
Net cash used in investing activities (4,525) (2,668) (11,857)
Financing activities
Dividends paid (4,800) (2,400) (3,000)
------------------------------------
Net cash used in financing activities (4,800) (2,400) (3,000)
(Decrease) increase in cash and cash
equivalents (2,204) 111 (6,894)
Cash and cash equivalents, beginning of
year 8,315 8,204 15,098
------------------------------------
Cash and cash equivalents, end of year $ 6,111 $ 8,315 $ 8,204
====================================
See accompanying notes.
-5-
American Southern Insurance Company
Notes to Consolidated Financial Statements
December 31, 1994
1. Significant Accounting Policies
Organization
American Southern Insurance Company (the "Company"), which was purchased October
10, 1991, is a wholly-owned subsidiary of Vista Resources, Inc. (the "Parent" or
"Vista") and is domiciled in Georgia. The Company has three wholly-owned
subsidiaries: American Safety Insurance Company ("American Safety"), Automated
Systems of Georgia, Inc. ("Automated Systems"), and Automobile Safety
Management, Inc. The Company sells various forms of property/casualty insurance
with an emphasis on commercial automobile coverages. Several large fleets
constitute a significant portion of premiums written. American Safety writes a
minimal amount of business, primarily commercial auto. Automated Systems is
engaged in premium financing, while Automobile Safety Management, Inc. has only
minimal activity and writes no insurance.
Basis of Preparation
The accounts of American Southern Insurance Company are presented in conformity
with generally accepted accounting principles which vary from reporting
practices prescribed or permitted by insurance regulatory authorities. All
significant intercompany accounts have been eliminated.
Cash and Cash Equivalents
Short-term investments, which include investments with maturities of less than
three months at the date of acquisition, are included in cash and cash
equivalents and are carried at cost which approximates fair value. The amount of
short-term investments included in cash and cash equivalents is $5,442,000 and
$7,370,000 in 1994 and 1993, respectively.
Investments
Investments available-for-sale and trading securities are carried at their fair
values. Investments held-to-maturity are carried at amortized cost. Unrealized
gains and losses on investments available-for-sale are recorded, net of
estimated taxes, as a component of stockholder's equity. Realized gains and
losses on all investments, including provisions for market declines not
considered to be temporary, are included in the determination of net income.
-6-
1. Significant Accounting Policies (continued)
Investments (continued)
The Company's investment portfolio is not significantly concentrated in any
particular industry or geographic location.
Premium Income
Premiums are presented net of reinsurance premiums ceded during the period.
Premiums written are recognized as income over the terms of the related policies
when earned. Accordingly, unearned premiums represent the portion of net
premiums written applicable to the unexpired terms of policies in force,
calculated on a monthly pro rata basis.
Deferred Policy Acquisition Costs
Acquisition costs, consisting of commissions and other underwriting expenses
which vary with, and are directly related to, the production of new business,
are deferred and amortized over the period in which the related premiums are
earned. Acquisition costs to be deferred are subject to a limitation
representing the excess of anticipated earned premiums over anticipated losses,
loss adjustment expenses and maintenance costs. Anticipated investment income is
considered in determining if a premium deficiency related to short-term
contracts exists. Amortization of deferred policy acquisition costs for 1994 was
$4,413,000, for 1993, $4,913,000 and for 1992, $4,791,000.
Unpaid Losses and Loss Adjustment Expenses
The estimated liability for unpaid losses and loss adjustment expenses is based
upon: (a) management's estimate of ultimate liability and claim adjusters'
evaluations for unpaid claims reported prior to the close of the accounting
period, (b) estimates of incurred but not reported claims based on past
experience, (c) estimates of loss adjustment expenses, and (d) reductions for
estimated amounts of reinsurance and salvage and subrogation recoverable. The
estimated liability is continually reviewed and updated, and changes to the
estimated liability are recorded in the statement of income in the year in which
such changes are known.
-7-
1. Significant Accounting Policies (continued)
Goodwill
The excess of the purchase price over the net assets acquired as a result of the
acquisition of the Company by Vista is classified as goodwill and is amortized
using the straight-line method over forty years.
Depreciation
Depreciation is computed on the straight-line method over the estimated useful
lives of the respective assets.
Accounting Changes
Effective January 1, 1994, American Southern Insurance Company adopted Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). In accordance with SFAS 115, prior
period financial statements have not been restated to reflect the change in
accounting principle. The cumulative effect on net income as of January 1, 1994
of adopting SFAS 115 for investments which previously were classified as
held-to-maturity and are now classified as trading securities was immaterial.
The balance of stockholder's equity as of January 1, 1994 was increased by
$1,249,000, net of income taxes, to reflect the net unrealized gains on
investments previously classified as held-to-maturity which are now classified
as available-for-sale. Certain reclassifications have been made to the 1993
financial statements to conform with the 1994 presentation.
Effective January 1, 1993, American Southern Insurance Company adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). This statement requires an asset and liability approach for financial
accounting and reporting of income taxes. Under this approach, deferred income
taxes are recognized for the estimated taxes ultimately payable or recoverable
based on enacted tax law. Changes in enacted tax rates are reflected in the tax
provision as they occur. As permitted by SFAS 109, American Southern Insurance
Company elected not to restate the financial statements of prior years. The
effect of the change on net income was not material; the cumulative effect of
the change increased net income for the year ended December 31, 1993 by $83,000.
-8-
1. Significant Accounting Policies (continued)
Accounting Changes (continued)
In addition, the Company adopted Statement of Financial Accounting Standards No.
113 ("SFAS 113"), Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts in 1993. SFAS 113 eliminates reporting amounts for
reinsured contracts net of the effects of reinsurance. SFAS 113 requires that
reinsurance receivables and prepaid reinsurance premiums be reported as assets
and establishes conditions required for a contract with a reinsurer to qualify
for reinsurance accounting. Contracts that do not result in the possibility that
the reinsurer may realize significant gain or loss from the insurance risk
assumed are accounted for as deposits. The adoption of SFAS 113 did not affect
income before the cumulative effect of the changes in accounting methods or net
income.
Financial Instruments
Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures
about Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
in the footnotes to these financial statements do not represent the underlying
value of American Southern Insurance Company.
2. Retirement Plan
During 1993 and 1992, American Southern Insurance Company had a non-contributory
defined benefit pension plan which covered substantially all of its employees.
Effective January 1, 1994, the plan was amended to remove the highly compensated
employees and to freeze the accrued benefits of the highly compensated employees
as of
-9-
2. Retirement Plan (continued)
December 31, 1988. The provisions of the plan continue to cover all other
eligible participants in 1994. Assets of the plan consist principally of money
market funds and U.S. Government and agency securities. The policy is to fund
pension costs accrued. Benefits are based on years of service and the employee's
compensation.
Reconciliation of the funded status of the plan is presented below:
December 31
1994 1993
------------------------
(Dollars in Thousands)
Accumulated benefits obligations:
Vested $1,248 $1,469
Nonvested 17 15
------------------------
Total $1,265 $1,484
========================
Projected benefit obligation $1,752 $2,355
Fair value of plan assets 2,193 2,192
------------------------
Plan assets in excess of (less than)
projected benefit obligation 441 (163)
Unrecognized net transition obligation
and prior service costs (491) 18
Unrecognized net loss 254 306
------------------------
Prepaid pension cost included in other
assets on the accompanying balance
sheet $ 204 $ 161
========================
-10-
2. Retirement Plan (continued)
The net periodic pension cost for 1994, 1993 and 1992 was as follows:
Year ended December 31
1994 1993 1992
------------------------------------
(Dollars in Thousands)
Service cost (benefits
earned during period) $ 82 $ 72 $ 65
Interest cost on
projected benefit
obligation 136 156 143
Actual return on plan
assets (10) (130) (98)
Net amortization and
deferral (191) (23) (48)
------------------------------------
$ 17 $ 75 $ 62
====================================
The weighted-average discount rates and rates of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligations were 8.0% and 6.0%, respectively in 1994 and 7.25% and 6.0%,
respectively in 1993. The expected long-term rate of return on assets was 8.0%.
The Company also sponsors a noncontributory profit sharing plan which covers
substantially all officers and employees. Profit sharing distributions are based
on a pre-determined formula based on annual operating results. The amount of
profit sharing expense recorded for the years ended December 31, 1994, 1993 and
1992 was approximately $889,000, $964,000 and $944,000, respectively.
3. Income Taxes
The Company's Federal income tax return is consolidated with the Parent. The
method of allocation between the companies is subject to a written agreement,
which is approved by the Board of Directors, and is based on separate return
calculations. Intercompany tax balances are settled quarterly. In the event
taxable losses are incurred by the Company, amounts are received to the extent
that losses are offset against taxable income on the consolidated Federal income
tax return.
-11-
3. Income Taxes (continued)
Effective January 1, 1993, American Southern Insurance Company changed its
method of accounting for income taxes from the deferred method to the liability
method required by SFAS 109. As permitted under the new rules, prior years'
financial statements have not been restated.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
American Southern Insurance Company's deferred income tax assets are as follows:
December 31
1994 1993
------------------------
(Dollars in Thousands)
Deferred income tax assets:
Discount loss reserve $ 722 $ 757
Unearned premium reserve 916 736
Deferred acquisition cost (486) (446)
Unrealized investment losses 852 -
Other (87) (221)
------------------------
Deferred income tax assets, net $1,917 $ 826
========================
The deferred income tax asset is net of a valuation reserve of $84,000 which was
established at December 31, 1994 and is related to unrealized investment losses.
Federal income taxes of $1,611,000, $1,079,000 and $3,571,800 were paid in 1994,
1993 and 1992, respectively.
-12-
3. Income Taxes (continued)
The provisions for income taxes differ from the amounts computed by applying the
U.S. Federal income statutory tax rates as follows:
Year ended December 31
1994 1993 1992
------------------------------------
Statutory rate 34.0% 34.0% 34.0%
Dividend credits (2.2) (2.3) (1.3)
Tax-exempt interest (5.9) (4.9) (3.7)
Write-off of intangibles 1.0 1.0 .9
Other (.1) (1.2) (.4)
------------------------------------
26.8% 26.6% 29.5%
====================================
-13-
4. Investments
Following is a summary of investments at December 31, 1994 (in thousands):
Cost or Gross Gross Estimated Balance
Amortized Unrealized Unrealized Fair Sheet
Cost Gains Losses Value Amount
-----------------------------------------------------
December 31, 1994 Available-for-sale:
Preferred stocks $ 7,952 $ - $ 699 $7,253 $7,253
Debt securities
issued by state
and political
subdivisions 21,350 55 1,005 20,400 20,400
Debt securities
issued by the
U.S. Treasury
and other U.S.
Government
corporations and
agencies 26,152 9 1,163 24,998 24,998
Corporate debt
securities 851 108 4 955 955
-----------------------------------------------------
$56,305 $172 $2,871 $53,606 $53,606
=====================================================
Held-to-maturity:
Debt securities
issued by state
and political
subdivisions $ 1,713 $ 1 $ 85 $1,629 $1,713
Debt securities
issued by the
U.S. Treasury
and other U.S.
Government
corporations and
agencies 1,440 1 58 1,383 1,440
Corporate debt
securities 100 - 15 85 100
-----------------------------------------------------
$ 3,253 $ 2 $ 158 $3,097 $3,253
=====================================================
Trading securities:
Preferred stocks $ 638 $ - $ - $ 638 $ 638
=====================================================
-14-
4. Investments (continued)
At December 31, 1993, the amortized cost, unrealized gains and losses (before
Federal income tax effect) and estimated market values of investments in debt
securities held as assets were as follows (in thousands):
Cost or Gross Gross Estimated Balance
Amortized Unrealized Unrealized Fair Sheet
Cost Gains Losses Value Amount
------------------------------------------------------
December 31, 1993
U.S. Treasury
securities and
obligations of
U.S. Government
corporations and
agencies $36,544 $ 160 $232 $36,472 $36,544
Obligations of
states and
political
subdivisions 17,748 1,871 - 19,619 17,748
Corporate debt
securities 988 182 - 1,170 988
------------------------------------------------------
$55,280 $2,213 $232 $57,261 $55,280
======================================================
-15-
4. Investments (continued)
The reconciliation of debt securities to the accompanying consolidated balance
sheet at December 31, 1993 is as follows (in thousands):
Bonds $47,910
Short-term investments 7,370
-------------
Total debt securities $55,280
=============
Investments:
Bonds $47,910
Preferred stock 8,159
-------------
Total investments $56,069
=============
Cash and cash equivalents:
Cash $ 945
Short-term investments 7,370
-------------
Total cash and cash equivalents $8,315
=============
Investments in securities at December 31, 1993 are as follows (in thousands):
Cost or Balance
Amortized Estimated Sheet
Cost Market Amount
---------------------------------
Bonds $47,910 $49,891 $47,910
Preferred stock 7,829 8,159 8,159
Short-term investments
(included in cash and
cash equivalents) 7,370 7,370 7,370
---------------------------------
$63,109 $65,420 $63,439
=================================
-16-
4. Investments (continued)
The proceeds from sales of available-for-sale and maturities of held-to-maturity
securities were $46,302,000 for 1994. Gross realized gains and (losses) on sales
of available-for-sale securities were $566,000 and $(435,000) for 1994. Cost is
determined by specific identification for purposes of calculating realized gains
and losses. There were no transfers of securities to or from the
available-for-sale or trading categories during 1994. There have been no sales
of securities classified as held-to-maturity during 1994.
Proceeds from sales of investments in debt securities held as assets during 1993
were $23,654,000 and during 1992 were $33,949,000. Gross realized gains on sales
of debt securities in 1993 were $80,000 and in 1992 were $275,000. Gross
realized losses were $37,000 in 1993 and were $50,000 in 1992.
Gross unrealized gains (less losses) for debt securities increased $1,686,000
and decreased $778,000 for 1993 and 1992, respectively. Gross unrealized gains
(less losses) for equity securities increased $292,000 and $38,000 for 1993 and
1992, respectively.
The fair values of investment securities (including preferred stock) are based
on quoted market prices.
-17-
4. Investments (continued)
The amortized cost and estimated fair value of debt securities at December 31,
1994, by contractual maturities, are shown below (in thousands). Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
December 31, 1994
---------------------------
Cost or Estimated
Amortized Cost Fair
Value
---------------------------
Available-for-sale:
Due in one year or less $ 250 $ 250
Due after one year through
five years 25,804 24,750
Due after five years through
ten years 100 90
Due after ten years 22,199 21,263
---------------------------
48,353 46,353
Preferred stocks 7,952 7,253
---------------------------
Total available-for-sale $56,305 $53,606
===========================
Cost or Estimated
Amortized Cost Fair
Value
---------------------------
Held-to-maturity:
Due in one year or less $ 200 $ 200
Due after one year through
five years 1,914 1,856
Due after five years through
ten years 100 86
Due after ten years 1,039 955
---------------------------
Total held-to-maturity $3,253 $3,097
===========================
-18-
4. Investments (continued)
Gross investment income for 1994 from the various types of securities is
summarized as follows:
Year ended
December
31, 1994
-------------
Available-for-sale:
Preferred stocks $ 604
Debt securities issued by state and
political subdivisions 1,119
Debt securities issued by the U.S. Treasury
and other U.S. Government corporations and
agencies 1,451
Corporate debt securities 73
-------------
3,247
-------------
Held-to-maturity:
Debt securities issued by state and
political subdivisions 86
Debt securities issued by the U.S. Treasury
and other U.S. Government corporations and
agencies 102
Corporate debt securities 6
-------------
194
-------------
Trading securities:
Preferred stocks 54
-------------
$3,495
=============
-19-
4. Investments (continued)
Major categories of investment income from securities for the years ended
December 31 are summarized as follows (in thousands):
1993 1992
------------------------
Bonds $2,823 $2,866
Preferred stock 695 425
------------------------
$3,518 $3,291
========================
Net investment income per the accompanying consolidated statement of income
includes short-term investment income and other income.
At December 31, 1994 and 1993, bonds and short-term investments with an
amortized cost of $3,253,000 and $2,722,000, respectively, were on deposit with
various state insurance departments to meet regulatory requirements.
5. Reinsurance Ceded and Assumed
In the ordinary course of business, certain premiums and benefits are assumed
from and ceded to other insurance companies under various reinsurance
agreements. The ceding agreements principally provide American Southern
Insurance Company with increased capacity to write larger risks. Reinsurance
contracts do not relieve American Southern Insurance Company from its obligation
to its policyholders; accordingly, to the extent that any reinsuring company
should be unable to meet its obligations under the existing reinsurance
agreements, American Southern Insurance Company would be liable for such
defaulted amounts.
To minimize its exposure to significant losses from reinsurer insolvencies,
American Southern Insurance Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers.
At December 31, 1994 and December 31, 1993, reinsurance receivables of
$13,039,000 and $9,689,000, respectively, were associated with a single
reinsurer. Total reinsurance recoveries in 1994, 1993 and 1992 were $8,527,000
and $5,144,000 and $4,569,000, respectively.
-20-
5. Reinsurance Ceded and Assumed (continued)
The effect of reinsurance on premiums written and earned in 1994, 1993 and 1992
was as follows (in thousands):
Year ended December 31
1994 Premiums 1993 Premiums 1992 Premiums
-----------------------------------------------------
Written Earned Written Earned Written Earned
------------------------------------------------------
Direct $20,793 $21,344 $25,949 $25,758 $26,705 $25,902
Assumed 23,532 21,304 17,519 18,712 18,659 16,313
Ceded (5,659) (5,659) (5,217) (5,217) (4,965) (4,965)
------------------------------------------------------
Net premiums $38,666 $36,989 $38,251 $39,253 $40,399 $37,250
======================================================
6. Statutory Net Worth
American Southern Insurance Company prepares statutory financial statements in
accordance with accounting practices prescribed or permitted by the State of
Georgia Insurance Department. "Prescribed" statutory accounting practices
include a variety of publications of the National Association of Insurance
Commissioners (NAIC) as well as state laws, regulations and general
administrative rules. American Southern Insurance Company has not been required
nor has it sought written approval for accounting for a transaction which
differs from prescribed accounting practices.
"Permitted" statutory accounting practices encompass all accounting practices
that are not prescribed; such practices may differ from state to state, from
company to company within the state, and may change in the future. The NAIC is
currently in the process of codifying statutory accounting practices, the result
of which is expected to constitute the only source of "prescribed" statutory
accounting practices.
The Company and its insurance subsidiary had statutory net worth totaling
$25,928,000, $26,641,000 and $24,025,000 at December 31, 1994, 1993 and 1992,
respectively. Consolidated statutory net income was $4,613,000, $5,249,000; and
$4,731,000 for 1994, 1993 and 1992, respectively.
-21-
6. Statutory Net Worth (continued)
The Company exceeded its minimum capital and surplus requirements at December
31, 1994. Additionally, payment of dividends, unless approved by the insurance
commissioner, is limited to the greater of 10% of statutory net worth or net
income, excluding realized capital gains, of the preceding year. Dividends paid
by American Southern Insurance Company to Vista were $4,800,000, $2,400,000 and
$3,000,000 in 1994, 1993 and 1992, respectively.
-22-
7. Liability for Losses and Loss Adjustment Expenses
Activity in the liability for losses and loss adjustment expenses ("LAE") is
summarized as follows:
Year ended December 31
1994 1993 1992
------------------------------------
(000's omitted)
Liability for losses and LAE at
beginning of year, net of
reinsurance recoverables $22,573 $20,767 $19,327
Provision for losses and LAE for
claims occurring in the current
year, net of reinsurance 29,601 30,541 27,022
Decrease in estimated losses and
LAE for claims occurring in
prior years, net of reinsurance (4,002) (3,525) (1,860)
------------------------------------
Total 25,599 27,016 25,162
------------------------------------
Losses and LAE payments for claims occurring during:
Current year 13,701 15,072 13,637
Prior years 11,105 10,139 10,085
------------------------------------
Total paid, net of reinsurance 24,806 25,211 23,722
------------------------------------
Liability for losses and LAE at
end of year, net of reinsurance 23,366 22,572 20,767
Reinsurance receivables 13,039 9,689 9,641
Drafts outstanding 1,421 586 1,947
------------------------------------
Liability for losses and LAE at
end of year, gross $37,826 $32,847 $32,355
====================================
-23-
8. Leases
The Company leases office space under a noncancellable operating lease expiring
in 2000, subject to escalation based on the lessor's expenses. Future minimum
lease payments are as follows:
Year ended December 31,
1995 $ 202,600
1996 204,000
1997 204,000
1998 204,000
1999 and thereafter 221,000
------------
Total $1,035,600
============
Rental expense for the years ended December 31, 1994, 1993 and 1992 was
$195,485, $172,303 and $185,200, respectively.
9. Commitments and Contingencies
The Company is party to pending or threatened lawsuits arising from the normal
conduct of its business. Due to the climate in insurance and business
litigation, suits against the Company sometimes include substantial additional
claims for consequential damages, punitive damages and other similar types of
relief. While it is not possible to forecast the outcome of such litigation, it
is the opinion of management that the disposition of such lawsuits will not have
a materially adverse effect on the Company's financial position or results of
operations.
10. Subsequent Event
On December 31, 1995, the Company was sold to Atlantic American Corporation.
-24-
Exhibit 99.5
PRO FORMA FINANCIAL INFORMATION
PRO FORMA FINANCIAL INFORMATION
(Unaudited)
The following unaudited pro forma condensed financial information has been
prepared to reflect the December 31, 1995 acquisition of 100% of the outstanding
common shares of American Southern Insurance Company ('American Southern"). The
pro forma information is presented as if the acquisition, accounted for as a
purchase, had taken place at the beginning of the periods presented, after
giving effect to the pro forma adjustments described below. The pro forma
information is not necessarily indicative of the financial position or results
of operations that would have occurred had the acquisition taken place at the
beginning of such periods. This information should be read in conjunction with
the audited consolidated financial statements and the notes thereto of Atlantic
American Corporation ("Atlantic American"), included in Atlantic American's Form
10-K for the year ended December 31, 1994 and the audited financial statements
of American Southern, included elsewhere herein.
The pro forma combined balance sheet as of September 30, 1995 combines the
balance sheets of Atlantic American as of September 30, 1995, and American
Southern as of September 30, 1995. Pro forma adjustments applied to the
historical financial statements include the following:
(a) Reflects the acquisition costs by Atlantic American
for the purchase of American Southern.
(b) Reflects excess of purchase price over market
value of assets.
(c) Reflects debt used to acquire American Southern.
The pro forma combined statement of income for the year ended December 31,
1994 combines the operations of Atlantic American for the year ended December
31, 1994 and American Southern for the year ended December 31, 1994. The pro
forma combined statement of income for the nine month period ended September 30,
1995 combines the operations of Atlantic American for the nine month period
ended September 30, 1995 and American Southern for the nine month period ended
September 30, 1995. Pro forma adjustments applied to the historical financial
statements include the following:
(a) Reflects an increase in interest expense on
funds incurred for the acquisition.
(b) Reflects the amortization of goodwill.
(c) Reflects Atlantic American's tax sharing
agreement with its subsidiaries.
-1-
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
09/30/95
(Unaudited)
(In thousands)
Actual
-----------------------
Atlantic American
American Southern Pro Forma Pro Forma
Corporation Insurance Adjustments Combined
Co.
-----------------------------------------------
ASSETS
Cash, including short-term
investments $ 8,975 $ 9,708 $ (236) (a) $ 18,447
Investments 105,853 59,408 - 165,261
Receivables:
Reinsurance 12,766 10,884 - 23,650
Other 11,875 9,944 - 21,819
Deferred acquisition costs 13,220 2,331 - 15,551
Other assets 2,900 1,420 - 4,320
Goodwill - - 3,058 (b) 3,058
Net assets of discontinued
operations 4,569 - - 4,569
-------- ------- ------ --------
Total assets $160,158 $93,695 $2,822 $256,675
======== ======= ====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance reserves and policy
funds $ 91,577 $59,765 $ - $151,342
Accounts payable and
accrued expenses 5,735 2,752 - 8,487
Long-term debt 4,594 - 34,000 (c) 38,594
Long-term debt payable
to affiliates 19,733 - - 19,733
Minority interest 1,210 - - 1,210
------- ------ ------ -------
Total liabilities 122,849 62,517 34,000 219,366
------- ------ ------ -------
Commitments and contingencies Shareholders' equity:
Preferred stock 3,000 - - 3,000
Other equity 34,309 31,178 (31,178) 34,309
------ ------ ------- ------
Total shareholders' equity 37,309 31,178 (31,178) 37,309
------ ------ ------- ------
Total liabilities and
shareholders' equity $160,158 $93,695 $ 2,822 $256,675
======== ======= ======== ========
-2-
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended 12/31/94
(In thousands, except per share data)
Actual
----------------------
American
Atlantic Southern
American Insurance Pro Forma ProForma
Corporation Co. Adjustments Combined
----------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Revenue:
Insurance premiums $41,701 $36,989 $ - $ 78,690
Investment income 6,628 3,844 - 10,472
Realized investment gains, net 870 8 - 878
------ ------ ------ ------
Total revenue 49,199 40,841 - 90,040
------ ------ ------ ------
Benefits and expenses:
Insurance benefits and
losses incurred 21,955 25,599 - 47,554
Commissions and underwriting
expenses 13,355 9,105 - 22,460
Interest expense 1,968 - 2,499 (a) 4,467
Other 5,404 - 243 (b) 5,647
------ ------ ------ ------
Total benefits and
expenses 42,682 34,704 2,742 80,128
------ ------ ------ ------
Income before
income tax benefit,
(expense) 6,517 6,137 (2,742) 9,912
Income tax benefit,
(expense) 546 (1,615) 1,717 (c) 648
------ ------- ------ ------
Income from continuing
operations 7,063 4,522 (1,025) 10,560
Income from discontinued
operations 2,207 - - 2,207
------ ------ ------ ------
Income before
extraordinary gain 9,270 4,522 (1,025) 12,767
Extraordinary gain 100 - - 100
------ ------ ------ ------
Net income $ 9,370 $4,522 $(1,025) $12,867
========= ====== ======= =======
Operating results per common share:
Continuing operations $.37 $.56
Discontinued operations .12 .12
Extraordinary gain NIL NIL
------ ------
Net income per common
share $ .49 $.68
====== ======
-3-
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
For the Nine Months Ended 09/30/95
(Unaudited)
(In thousands, except per share data)
Actual
----------------------
American
Atlantic Southern
American Insurance Pro Forma Pro Forma
Corporation Co. Adjustments Combined
------------------------------------------------
Revenue:
Insurance premiums $32,000 $29,533 $ - $61,533
Investment income 4,830 2,985 - 7,815
Realized investment gains,
net 1,441 203 - 1,644
------ ------ ------ ------
Total revenue 38,271 32,721 - 70,992
------ ------ ------ ------
Benefits and expenses:
Insurance benefits and
losses incurred 19,043 21,794 - 40,837
Commissions and underwriting
expenses 11,000 6,896 - 17,896
Interest expense 1,690 - 2,157 (a) 3,847
Other 4,380 - 153 4,533
------ ------ ------ ------
Total benefits and
expenses 36,113 28,690 2,310 67,113
------ ------ ------ ------
Income before income
tax (expense), benefit 2,158 4,031 (2,310) 3,879
Income tax (expense),
benefit (9) (972) 917 (c) (64)
------ ------ ------ ------
Income from continuing
operations 2,149 3,059 (1,393) 3,815
Income from discontinued
operations (4,384) - - (4,384)
------ ------ ------- ------
Net (loss) income ($2,235) $ 3,059 $(1,393) $ (569)
======= ======= ======= ======
Operating results per common share:
Continuing operations $.10 $.19
Discontinued operations (.23) (.23)
----- -----
Net loss per common share ($.13) $(.04)
===== =====
-4-